UNITED STATES BANKRUPTCY COURT
|DO NOT PUBLISH
This case disposition has no value as precedent and is not intended for publication. Any publication, either in print or electronically, is contrary to the intent and wishes of the court.
NORTHERN DISTRICT OF CALIFORNIA
JOSEPH and CHRISTINE LONGO, No. 99-10874
BRUNO C. PAGENDARM, et al.,
v. A.P. No. 99-1170
JOSEPH and CHRISTINE LONGO,
Memorandum of Decision
According to the amended complaint in this adversary proceeding, in 1997 plaintiffs Bruno and
Janet Pagendarm agreed to exchange personal residences with debtors and defendants Joseph and
Christine Longo. As part of the agreement, the Longos were to build an additional home for the
Pagendarms for $75,000.00. After escrow closed, the Pagendarms changed their minds about paying
the Longos to construct the home and requested return of their $75,000.00, which they thought was
still in escrow. They then learned that the money had been paid over to the Longos, who had spent it.
The Longos promised to repay the money.
The complaint further alleges that the Pagendarms filed a lawsuit against the Longos in
October, 1998; that the parties entered into a settlement agreement; and that one day before the
settlement became a judgment the Longos filed a Chapter 7 bankruptcy petition.
The Pagendarms take the position that they have stated claims under Bankruptcy Code sections
523(a)(2)[fraud], 523(a)(4)[embezzlement] and 523(a)(6)["attempted conversion"]. The Longos have
filed a motion to dismiss, primarily based on the settlement agreement. For the reasons stated below,
the court treats the motion as one for summary judgment and will grant the motion.
The complaint is certainly defective in that it fails to allege that the Longos failed to obtain the
$75,000.00 by any wrongful means. Without an express trust, the Longos cannot be held liable for
defalcation pursuant to § 523(a)(4). In re Pedrazzini
, 644 F.2d 756, 758 (9th
Cir. 1981). Without some
sort of intentionally malicious conduct, they cannot be liable pursuant to § 523(a)(6). Kawaauhau v.
, 523 U.S. 57 (1998). The fraud allegations seem based only on the Longos' alleged promise to
repay, not any fraud in obtaining the funds. The equivocation evident in the complaint makes it doubtful
the Pagendarms ever had a meritorious case for nondischargeability.
Nonetheless, it is the settlement agreement which compels dismissal of this adversary proceeding
with prejudice. It is as comprehensive as can be imagined, and contains language virtually identical to
the settlement agreement considered in In re Fischer
, 116 F.3d 388 (9th
Cir. 1997). In that case, the
court ruled that the settlement agreement was a novation which barred a nondischargeability complaint
based on any prior conduct.
The Pagendarms argue that the court should not follow Fischer
for two reasons. First, they
argue that Fischer
is distinguishable because in that case there was at least partial performance by the
debtors. Second, they argue that they can rescind the settlement agreement. The court sees no merit in
There was substantial nonperformance in Fisher
, yet the court still found that the settlement
agreement was an effective novation. Similarly, there was only nominal performance in Gonder v.
, 372 F.2d 94 (9th
Cir. 1967), cited in Fischer
as controlling authority. There does not seem to be
any basis in the law for differentiating between cases where there was only a few payments made from
those cases in which no payment was made. Both Fischer
stand for the principle that when
a complete settlement is reached in consideration for a promise to pay in the future, the failure of one
party to make the promised payments does not turn the settlement into a nullity. Rather, the settlement
agreement is a novation which replaces all of the prior obligations.
For the same reason, the settlement agreement is not subject to rescission for failure of the
debtor to make the payments. It is a simple matter to draft a settlement agreement which is only
effective on payment. Where the parties instead have agreed that "By executing this agreement, each of
the parties intend to and do hereby extinguish the obligations heretofore existing between them and
arising from that dispute," there is no basis for rescinding the agreement after execution.
The complaint hardly paints a compelling picture of dishonest conduct on the part of the
Longos. However, their pre-settlement conduct is irrelevant because any and all prior claims were
extinguished upon execution of the settlement agreement. Plaintiffs will therefore take nothing by their
complaint, which will be dismissed with prejudice. Counsel for the Longos shall submit an appropriate
form of order granting summary judgment and an appropriate form of judgment. The Longos shall
recover any costs of suit.
Dated: November 4, 1999 ____________________________
United States Bankruptcy